Exhibit 14-3 Aggregate supply and demand curves

-As the aggregate demand curve shifts from AD₁ to AD₂ in Exhibit 14-3,the economy experiences:
A)cost-push inflation.
B)demand-pull inflation.
C)wage-push inflation.
D)hyperinflation.

Question

Exhibit 14-3 Aggregate supply and demand curves
 
-As the aggregate demand curve shifts from AD₁ to AD₂ in Exhibit 14-3,the economy experiences:
A)cost-push inflation. 
B)demand-pull inflation. 
C)wage-push inflation. 
D)hyperinflation.

Quizplus · Accepted Answer

As the aggregate demand curve shifts from AD₁ to AD₂, the equilibrium point moves from point A to point B, causing an increase in both price level (inflation) and real output (GDP). This type of inflation is called demand-pull inflation, where an increase in demand exceeds the economy's ability to produce goods and services, leading to a rise in prices. Cost-push inflation occurs due to an increase in production costs, and wage-push inflation happens when workers' wages increase, leading to higher prices. Hyperinflation is an extreme form of inflation, where prices rapidly increase, leading to a breakdown in the economy.

Exhibit 14-3 Aggregate Supply and Demand Curves